Hospitality Properties generally fall into 3 categories; Full Service, Limited Service and Budget.
- Full-Service include amenities restaurants, banquets, concierge, spas and retail shops.
- Limited-Service are a step down in terms of service and amenities, often including meeting rooms, a fitness center and a swimming pool.
- Budget tend to focus on providing the basic necessities for a very low rate.
Bank Lender: Owner Occupied
Bank Lenders can excellent funding sources for long term Hospitality property loans. Banks provide low rates and fees for borrowers who have solid credit and can provide tax returns to document they can afford the loan. Bank loans are generally fixed for 5 – 10 years and payments based on a 20-25 year amortization. These loans are based on the revenue of the business, plus the financial strength and credit history of the borrower.
Pros
- Low Rates
- Diverse Property Types
- Flexible Underwriting
- Variety of Loan Programs
Cons
- Extensive Documentation
- Full Recourse
- Shorter Amortizations and Fixed Rate Terms Versus CMBS or Agency Lenders
- Cash out Refinances Limited
Loan Amount
500K+
Min. Rate
5.5% – 6.5%
Term Length
Up to 10 Years
Closing Time
8 – 12 Weeks
Max LTV
80%
Amort.
Up to 25 yrs
Private Lender: Property Income Based
Private Lenders are an excellent funding source for long term Hospitality property loans. Private lenders generally loan to a broader range of property classes, loan amounts, borrower credit scores, and debt service coverage levels than banks. Private lenders qualify “Ability to Pay” based on the cash flows of the subject property and not the overall net income of the borrower. Loans are generally risk based priced with the loan to value, credit score, debt service coverage ratio and investor experience determining the borrower cost of financing.
Pros
- Low Rates
- Diverse Property Types
- Flexible Underwriting
- Variety of Loan Programs
Cons
- Extensive Documentation
- Full Recourse
- Cash out Refinances Limited
Loan Amount
500K+
Min. Rate
6.5% – 9.5%
Term Length
Up to 30 Years
Closing Time
4 – 6 Weeks
Max LTV
75%
Amort.
Up to 30 yrs
SBA 504
The US Small Business Administration offers two excellent loan programs to promote the economic development of small businesses. The SBA 504 program may be used to finance the acquisition and/or development of an existing building, ground-up construction, expansion of a building, or heavy equipment. SBA 504 loans can be an solid alternative to bank and private lender financing for new business start ups or when traditional financing is unavailable.
Pros
- Based on Lease Income
- No Balloon
- Unlimited Cash Out
- Quick Approval
- Fast Closing Time
- Wide Variety of Property Types
- Limited or No Seasoning Required
Cons
- Need Fair Credit Score (650+)
- Higher Interest Rates Vs. Banks
- Prepayment Penalty
- No Construction
Loan Amount
500K – $20MM
Min. Rate
5.5% – 7.5%
Term Length
Up to 25 Years
Closing Time
8 – 12 Weeks
Max LTV
90%
Amort.
Up to 25 Yrs
SBA 7a
The US Small Business Administration offers two excellent loan programs to promote the economic development of small businesses. The SBA 7(a) loans are one of the most popular SBA loan programs because they provide the lowest down payment (10%) for real estate acquisitions, are a long term solution with no balloon payment, have competitive terms and a variety of uses. Small businesses can utilize the SBA 7(a) program to acquire their own office, warehouse, store, or other commercial real estate, or even construct a brand new facility. Other uses for SBA 7(a) loans include equipment purchase and working capital. SBA 7(a) loans can be an solid alternative to bank and private lender financing for new business start ups or when traditional financing is unavailable.
Pros
- 90% Financing
- Low Down Payments
- Long Payment Terms
- Reasonable Interest Rates
- Wide Variety of Uses
Cons
- Extensive Paperwork
- Longer Approval Process
- Need Good Credit
Loan Amount
$500K – $5MM
Min. Rate
6.5% – 8.5%
Term Length
Up to 25 Years
Closing Time
8 – 12 Weeks
Max LTV
90%
Amort.
Up to 25 Yrs
Private Lender: Hard Money Bridge
Private Lenders are the primary funding source for Hard Money Loans. Hard Money Loans are often referred to as “Asset Based” Loans where the lender believes there is enough equity in the property to quickly dispose of it if the borrower were to default on the loan. Hard Money Loans are short term loans of 12 – 24 months duration. Lenders generally expect the loan to paid off through the sale of the property or a refinance by another lender. Hard Money loans are very useful when a quick close is required or the borrower is unable to obtain financing from traditional lending sources.
Pros
- Flexible Underwriting
- Quick Closing
- Interest-Only Payments
- Up to 2 Yr Term
Cons
- High Interest Rate
- Higher Fees
- Short Term
- Extension Fees, if more time is needed.
Loan Amount
$250K+
Min. Rate
8.0% – 13.0%
Term Length
Up to 3 Years
Closing Time
2 – 4 Weeks
Max LTV
75%
Amort.
Interest Only
Private Lender: Rehab or Restabilization Bridge
Private Lenders are the primary funding source for purchase-rehab market. These lenders provide short term loans which include both the funds to purchase or refinance the property and funds to renovate the property. Pricing and loan amounts are heavily influenced by borrower rehab experience. Rehab funds are typically held in a rehab holdback account and released on draws.
Pros
- Underwriting Flexibility
- Quick Closing
- Interest-only Payments
- Pricing Based on Experience and Less on Credit
Cons
- Higher Interest Rate
- Higher Fees
- Short Term
- Extension Fees, if more time is needed.
Loan Amount
$250K+
Min. Rate
8.0% – 13.0%
Term Length
Up to 3 Years
Closing Time
2 – 4 Weeks
Max LTV
85% LTC
Amort.
Interest Only